The decision to divorce was probably made after much careful consideration. Likewise, when it comes to the property division settlement, Texas residents are encouraged to approach this process carefully. Though this is a community property state, the division of certain assets can quickly become complicated.
One area where the division of assets can become troublesome is retirement accounts. There are several different classifications, and the rules and potential costs of dividing these accounts may have different implications for the parties involved. When it comes to federal regulations and the Internal Revenue Service, retirement and pension plans fall into two distinct categories: those that are classified as qualified and those that are not. Qualified accounts required a Qualified Domestic Relations Order signed by a judge before they can be separated into two accounts. A 401(k) is the most common type of account subjected to these rules.
In contrast, an Individual Retirement Account, (IRA) can be handled with the divorce decree. However, the manner in which this type of account is divided can have a significant impact in regards to taxes and penalties. In addition, if the divorcing couple are at or over retirement age, the timing for dividing these types of accounts can effect both required withdrawals as well as the amount that will be taxed.
Due to the regulations and rules that apply to the division of retirement and pension plans, it is recommended that those who are considering a divorce seek professional financial advice. These professionals can help their clients avoid as many taxes and penalties as possible while providing advice for the future. In addition, Texas residents who are concerned about all of the potential consequences that property division will have on their finances may obtain the guidance of an experienced divorce attorney who can provide sound advice throughout the proceedings.